Secure Your Tennessee Investment: Co-Ownership Agreement
Thinking about buying property with a partner, friend, or family member in Tennessee? A well-drafted co-ownership agreement helps prevent misunderstandings, clarifies financial obligations, and protects your investment. Learn key terms to include, how Tennessee law treats co-owners, and practical steps to get your agreement in place.
Purchasing real estate with another person or entity can make ownership more attainable and diversify risk, but it also introduces legal and financial complexities. A Tennessee co-ownership agreement sets expectations before problems arise—covering contributions, decision-making, maintenance, exits, and dispute resolution—so your investment is better protected if plans change.
Common Forms of Co-Ownership in Tennessee
- Tenancy in common (TIC): Each co-owner holds an undivided interest (equal or unequal). Interests are transferable and pass through the owner’s estate.
- Joint tenancy with right of survivorship (JTWROS): Surviving co-owners automatically take a deceased owner’s interest if survivorship is expressly created in the deed; survivorship is not presumed in Tennessee. See Tenn. Code Ann. § 66-1-107.
- Tenancy by the entirety (married couples): Available to spouses in Tennessee and carries survivorship features by default. See § 66-1-107.
Your deed and agreement should align. If your goal is survivorship, the deed should say so clearly; if you prefer flexibility for estate planning, TIC may be more appropriate.
Key Provisions to Include
- Ownership interests: Initial percentages and how future capital contributions affect them.
- Down payment and financing: Who contributes what; responsibility for mortgage payments; treatment of late payments or defaults.
- Operating expenses: Taxes, insurance, HOA dues, utilities, routine maintenance, and who manages payments.
- Repairs and improvements: Approval thresholds for non-emergency work; cost-sharing; documentation; whether improvements change ownership percentages.
- Use and occupancy: Primary residence vs. investment; guest policies; short-term rental rules; pet/parking rules as applicable.
- Income and losses: Rent collection, vacancies, reserves, and how profits and losses are allocated for accounting and tax purposes.
- Decision-making: Voting rights, tie-breakers, and authority of any manager/agent (e.g., who can sign vendor contracts).
- Transfers and exits: Buy-sell rights, rights of first refusal, permitted transfers (e.g., to trusts), and valuation methods.
- Dispute resolution: Mediation and arbitration options; Tennessee governing law and venue.
- Insurance and risk: Property and liability coverage; lender requirements; indemnification between co-owners.
- Records and transparency: Bank accounts, bookkeeping, access to statements, and annual reconciliations.
- Death, disability, and divorce planning: Coordination with estate plans; survivorship/buyout mechanics.
Practical Tips
- Open a dedicated bank account for the property to keep records clean.
- Set a monthly reserve target (e.g., 3 to 6 months of expenses) for repairs and vacancies.
- Document approvals via email or shared workspace to avoid confusion later.
Aligning the Deed, Mortgage, and Agreement
Your deed controls how title is held, your loan documents set lender obligations, and your co-ownership agreement governs your internal relationship. Inconsistent documents can cause costly disputes. Before closing, confirm:
- The deed accurately reflects TIC, JTWROS (with clear survivorship language), or tenancy by the entirety as applicable. See § 66-1-107.
- The agreement matches the intended ownership and survivorship terms.
- Lender requirements (such as due-on-sale clauses or occupancy covenants) are not violated by your transfer or rental plans.
Partition Risks and How to Manage Them
Under Tennessee law, a co-owner generally may seek partition—either physically dividing the property when feasible or requesting a court-ordered sale if partition in kind is impracticable or would cause prejudice—with proceeds distributed according to interests and equitable adjustments. See Tenn. Code Ann. Title 29, Chapter 27. Well-drafted buyout rights, timelines, and dispute-resolution steps can reduce the likelihood of a forced sale.
Short-Term Rentals and Local Compliance
If you intend to rent the property, review local ordinances, HOA rules, and permitting requirements. Tennessee municipalities may regulate short-term rentals, and HOAs often impose separate restrictions. Your agreement should assign responsibility for permits, local and state tax collection/remittance, and compliance—and specify how violations or fines are handled among co-owners.
Tax and Entity Considerations
Co-owners can hold title individually or via an entity such as an LLC. Entities can centralize management and provide liability separation but add formation and compliance steps. Coordinate with your tax advisor regarding allocation of income and deductions, basis tracking for capital improvements, and Form 1099 reporting if you pay managers or contractors.
Checklist: Steps to Get Started
- Discuss goals candidly with all co-owners (time horizon, occupancy, exit options).
- Gather key financial details: down payment sources, loan terms, projected expenses, and reserves.
- Decide on title form and confirm with your closing attorney and lender.
- Draft a written agreement tailored to your property type (residential, rental, land) and plans.
- Coordinate deed language, the co-ownership agreement, and lender requirements before closing.
- Calendar regular check-ins to review expenses, reserves, and property condition.
FAQ
Do we need a written agreement if we are family?
Yes. Relationships change, and a clear written agreement protects everyone by documenting expectations and remedies.
Can our agreement prevent a partition action?
You can require mediation or arbitration and provide buyout rights and timelines. While you cannot eliminate a court’s authority entirely, strong contract terms reduce the risk of a forced sale.
Should we use an LLC to hold title?
LLCs can streamline management and offer liability separation, but add costs and compliance. Discuss with your attorney and tax advisor based on your goals and lender requirements.
How do we handle unequal contributions?
Spell out ownership percentages, how future contributions are credited, and whether improvements change percentages or are settled at exit.
What happens if one co-owner stops paying?
Include default provisions: notice, cure periods, advances by the non-defaulting owner, interest on advances, and potential buyout or forced sale mechanisms.
When to Consult a Tennessee Attorney
Work with a Tennessee real estate attorney when you form the co-ownership, amend ownership interests, add or remove a co-owner, plan a buyout, or confront a dispute about payments, repairs, or occupancy. Local counsel can also advise on partition exposure, survivorship, and compliance with county recording and municipal rental rules.
Contact our Tennessee real estate team to get started.
References
- Tenn. Code Ann. § 66-1-107 (2022) (Conveyance to two or more persons — Estates created)
- Tenn. Code Ann. Title 29, Chapter 27 (Partition)
Disclaimer
This blog is for general informational purposes only and is not legal advice. Reading it does not create an attorney-client relationship. Laws change and local rules vary; consult a Tennessee-licensed attorney about your specific situation.